Imagine Owning Fraser Range Metals Group (ASX:FRN) And Wondering If The 17% Share Price Slide Is Justified

Simply Wall St

Fraser Range Metals Group Limited (ASX:FRN) shareholders should be happy to see the share price up 27% in the last month. But that cannot eclipse the less-than-impressive returns over the last three years. Truth be told the share price declined 17% in three years and that return, Dear Reader, falls short of what you could have got from passive investing with an index fund.

View our latest analysis for Fraser Range Metals Group

With just AU$4,786 worth of revenue in twelve months, we don’t think the market considers Fraser Range Metals Group to have proven its business plan. This state of affairs suggests that venture capitalists won’t provide funds on attractive terms. As a result, we think it’s unlikely shareholders are paying much attention to current revenue, but rather speculating on growth in the years to come. It seems likely some shareholders believe that Fraser Range Metals Group will find or develop a valuable new mine before too long.

As a general rule, if a company doesn’t have much revenue, and it loses money, then it is a high risk investment. There is almost always a chance they will need to raise more capital, and their progress – and share price – will dictate how dilutive that is to current holders. While some such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt.

When it last reported its balance sheet in December 2018, Fraser Range Metals Group could boast a strong position, with net cash of AU$2.1m. This gives management the flexibility to drive business growth, without worrying too much about cash reserves. But with the share price diving 6.2% per year, over 3 years, it could be that the price was previously too hyped up. You can see in the image below, how Fraser Range Metals Group’s cash and debt levels have changed over time (click to see the values).

ASX:FRN Historical Debt, March 15th 2019

Of course, the truth is that it is hard to value companies without much revenue or profit. Given that situation, would you be concerned if it turned out insiders were relentlessly selling stock? I would feel more nervous about the company if that were so. It only takes a moment for you to check whether we have identified any insider sales recently.

A Different Perspective

Fraser Range Metals Group shareholders are up 5.6% for the year. It’s always nice to make money but this return falls short of the market return which was about 9.8% for the year. On the bright side, that’s certainly better than the yearly loss of about 6.2% endured over the last three years, implying that the company is doing better recently. It could well be that the business is stabilizing. Before spending more time on Fraser Range Metals Group it might be wise to click here to see if insiders have been buying or selling shares.

If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.